Facts
[A. AG] , headquartered in Zug, was active as an investment advisor until December 2002. In 2001 and 2002, it received client funds amounting to over CHF 100 million, which it promised to invest in foreign exchange trading. In reality, [A. AG] conducted only a small number of foreign exchange transactions and financed the requested payouts (returns, capital) primarily from accumulated investment funds and money from newly joined individuals. On 24 November 2003, [A. AG] was declared bankrupt. [AX.] and [BX.] (the taxpayers) invested a total of CHF 60,000 with [A. AG] from 14 June 2002 to 20 September 2002. According to the account statement from [A. AG] dated 31 October 2002, [AX.] had a balance of CHF 71,356.80 as of 31 October 2002. Since the taxpayers had not declared these returns in their 2002 tax return, the tax office of the Canton of Solothurn initiated a retrospective tax and penalty tax procedure against them.Considerations
1. Federal Direct Tax: The Federal Supreme Court upholds its established case law, according to which the profits credited to the investors by [A. AG] , which were largely fictitious, are to be qualified as taxable investment income (Art. 16 para. 1 and 20 DFTA). This applies regardless of the fact that the underlying redistribution principle (Ponzi scheme) had nothing to do with the agreed investment…